North Korea Won't Be The Only Issue South Korean President Moon Is Judged On

South Korean president Moon Jae-in in Seoul in May 2017. (Photographer: Yao Qilin/Pool via Bloomberg)

When South Korea’s newly-elected President Moon Jae-in meets with President Trump on Thursday and Friday, North Korea and its nuclear threats will undoubtedly be the centerpiece of their discussions.

The Trump administration's policy of “maximum pressure” stands in contrast to that of Moon, who plans to take a softer approach with Pyongyang than his two conservative predecessors. Echoing former President Roh Moo-hyun, Moon said he's open to dialogue with the North under the right conditions, signaling hopes for an era of cooperation.

Former South Korean President Roh Moo-Hyun (left) and former North Korean Leader Kim Jong-Il (right) during the inter-Korea Summit in Pyongyang, North Korea in October 2007. (STR/AFP/Getty Images)

Moon believes in this policy because he's implemented it before. He served as Roh’s chief of staff from 2007-08 and led the 2007 inter-Korean summit between Roh and former North Korean leader Kim Jong-il.

But while North Korea remains a critical matter, the success of Moon’s presidency will be judged largely on how South Korea's economy fares under his administration. Here are two key issues Moon aims to tackle back home.

Job creation

Creating jobs is Moon's top priority. Though South Korea is Asia's fourth-largest economy, its youth unemployment rate is a staggering -- and unsustainable -- 11.2%, more than double that of its entire working population. Moon has pledged to fund 810,000 more public-sector jobs during his five-year term.

It’s an ambitious plan that includes 174,000 civil service posts in national security and public safety as well as 340,000 jobs in social services. He also wants to raise the country’s minimum wage by 55% from 6,470 won ($5.70 USD) to 10,000 won ($8.80 USD) an hour by 2020.

Taking action

To deliver on his promise, earlier this month Moon proposed a 11.2 trillion won ($10 billion USD) stimulus package, part of which is aimed at paying for 86,000 new jobs, mostly in the public sector. During his speech at the National Assembly on June 12, he urged parliament to swiftly approve the budget boost, warning that the issue could turn into a “national disaster” if action is not promptly taken.

Policemen deployed at a May Day rally organized by unionized workers in Seoul on May 1, 2017 calling for a higher minimum wage. (JUNG YEON-JE/AFP/Getty Images)

“We have to shut down the cycle of growth without employment. We need an economic paradigm shift from the idea that jobs are created as the result of growth to the idea that growth occurs when jobs increase,” he said, according to the local press.

Moon believes that as more jobs are created, household income will increase, which would spur consumption and raise company earnings -- eventually creating more jobs. It stands in contrast to his two predecessors who argued that companies must grow first for jobs to be created.

Costs to consider

Not everyone agrees with Moon's way forward.

“[His plan] would obviously come to a high financial cost that would bring Korea deep into a fiscal deficit and add to the public debt that has doubled to nearly 40% since 2000. There are also dynamic effects: Not all public sector hiring is good. They must be given something to do, which generates new regulations that encroach on the private sector negatively,” said Hosuk Lee-Makiyama, a director at the European Centre for International Political Economy.

“If these new hires are put into providing public services (healthcare, education) these services are likely to compete with the private sector, given the massive numbers we're talking about here.”

To that end, instead of creating more public sector jobs, some experts recommend the government encourages private companies to increase hires by providing financial incentives and easing regulations. And some point out that raising the minimum wage could raise labor costs to the point where companies begin reducing their staff.

Chaebol reform

Another key component of Moon’s signature economic policy, referred to as “J-nomics,” is the country’s long-standing issue of chaebol reform. South Korea's large family-run conglomerates wield enormous influence on the economy, which have created monopolies and resulted in cases of embezzlement, tax avoidance and abuse of power.

Chaebol leaders who have been convicted on corruption charges have been routinely pardoned by former presidents, with little or no time served behind bars. It’s hardly a new concern and one that has been at the heart of several presidential campaigns.

This file photos shows Lee Jae-yong, center, vice chairman of Samsung Electronics Co., arriving at his trial for bribery and other charges at the Seoul Central District Court in South Korea on April 13, 2017. (AP Photo/Lee Jin-man, File)

Ousted president Park Geun-hye called for “economic democratization” and also pledged a harder stance on the chaebols when she began her term in 2013. Three years later, she became embroiled in an unprecedented scandal that eventually led to her impeachment, and put the chief of Korea’s largest conglomerate, Samsung’s Lee Jae-Yong, behind bars.

In an export-led economy where the annual revenue of the top five chaebols--Samsung, Hyundai, SK, LG, and Lotte--account for the equivalent of more than half the country’s $1.4 trillion gross domestic product, radical chaebol reform is highly unlikely, if not impossible.

A lost cause?

Like Moon, his liberal predecessors Roh and Kim Dae-jung both attempted to tackle the problem. But, as noted by columnist Choi Sung-jin at the Korea Times, "the two leaders had to seek chaebols’ cooperation to get out of business slumps, yielding to their power and giving up reforms.” The concern is that Moon will end up surrendering as well.

Cozy ties between governments and big businesses are, of course, not exclusive to South Korea. It's the corruption becoming so pervasive in these corporate behemoths that is a unique problem for the country.

“The economies of other export-led economies, like Sweden, Singapore, Taiwan or Switzerland, are run by dynastic mega conglomerates, too. Yet corruption is virtually unheard of,” said Lee-Makiyama.

“Korea is obviously different: Many observers see how Confucian the Korean society is, and that affects the relationship between the private sector and politics. Korean business management must bow to the government in a way that is unthinkable in Japan, or even China. The problem is the culture of politics, not economics.”

The 'chaebol sniper'

Kim Sang-jo after a press conference at the presidential Blue House in Seoul in May 2017. (Jeon Shin/Newsis via AP)

As part of his strategy, President Moon in May appointed “chaebol sniper” Kim Sang-jo, an economist who has long advocated for shareholder rights, as chairman of Korea’s Fair Trade Commission. Moon has also proposed legislation that would give more power to minority shareholders, allowing them more control in nominating board members.

But according to Choi, there is only one realistic option for reform: "Make [chaebols] law-abiding and socially responsible corporate citizens, through law enforcement and the pressure of public opinion.”

“Most important is how to force them to learn to co-prosper with smaller firms, instead of seeking further monopoly at the expense of the latter. Gradually, I think Korea needs to move toward the Swedish model and its Wallenberg Group, which contributes more than half of revenue in the form of taxes and other donations back to the society while its owners leave much of daily management to professional managers recruited from outside."

From the Forbes headquarters in Jersey City, I work with Forbes Asia’s editorial team and cover entrepreneurs from the region. For our individual country rich lists, I also track how some of the region’s wealthiest make, spend and lose their fortunes. As a side beat, I'm int...